When the East leapfrogs the West, latest by Theodora Lau

In recent years, China has produced quite a few fast-growing technology giants, including Alibaba, Baidu, JD, and Tencent. From how we communicate to how we pay, these companies have challenged the norms of how we conduct our day-to-day lives and what we should expect in this new digital era. According to CB Insights, there are now forty-one fintech unicorns valued in aggregate at US $154.1 billion. This includes twenty-five US-based startups, eight based in Asia, and the remaining eight split between Europe, Australia, and South America.

<<Photo Credit: CB Insights>>

A History of Innovation

Looking back at the long history of China, this ancient dragon has been the source of tremendous invention and innovation – from paper and printing to banknotes, from gunpowder to the compass and fireworks. Many of these, including the abacus, were groundbreaking and served to change the course of humanity.

Today, the country has established itself as a global leader of technology, thriving with ideas and activity that leapfrog the West. From artificial intelligence to financial technology innovation, the Chinese tech companies has transformed the way its citizens live, work, and play. The country’s rapid adoption of mobile payments via QR codes, for example, has rendered the country mostly cashless, and left many to wonder aloud: How is this even possible?

Innovation Success

Chinese tech giants are highly regarded as both innovative and successful. What is driving innovation so successfully in China? While there is no one-size-fits-all formula, a few ingredients are typically crucial for a successful innovation ecosystem: talent, experimentation, robust infrastructure (business, financial, and legal), money, and markets.

The ability to attract and retain talent is critically important. Mainland China has several universities in major cities such as Beijing and Shanghai that are ranked among the world’s top 100 for computer science and information systems (US News). Five universities in Hong Kong are also part of this list, giving the entire region consistent access to top quality research. In fact, one of the highest valued AI companies in the world, SenseTime, is incubated in Hong Kong, which is ranked as one of the top three financial centers in the world due to its robust financial and regulatory infrastructure.

Another key success factor for innovation is availability of capital. While there was a significant drop in Chinese fintech investment from Q4 2018 to Q1 2019, this was primarily due to regulatory tightening around lending firms. In the first quarter this year, there was still US $875 million VC-backed equity funding across 127 deals within fintech (CB Insights). What the future holds remains to be seen; although there does not seem to be a shortage of funds available for investment in China at least for the time being.

East Meets West

As Chinese tech companies look for new ways to innovate (and invest), they are inclined to create a broader ecosystem through partnering with other entities locally and abroad. Tencent for example, has made more than 700 investments across the world with more than a third of such investments being made outside China (Financial Times). While China and the West may appear to be vastly different markets, we have more in common than we might believe – and there is much we can learn from each other.

What is more apparent than ever is that we are all intertwined in this global economy. While the story of the technology arms raceis still being written – especially in regard to the development of emerging technologies such as artificial intelligence – when we consider the impact of Chinese innovation and Eastern invention on the rest of the world, we might consider something as equally ancient and as equally profound. In Aesop’s cautionary fable, the Tortoise and the Hare, he shows us that one may not win with the fastest speed, but rather, through hard work, persistence, and steadfast commitment.

We can only hope that these efforts benefit society equally.

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Listen in to our conversation with Richard Turrin on our new episode of Judge Me By My Cover on iTunes and Spotify, as we talk about innovation and fintech innovation in the East.